Know what you want to see, know where you want to see it.
Friday, 12 February 2010
7. Entry Formula
How many times has price missed your entry by 2 pips? Ever been stopped out by 2 pips and wished you had entered at the back of your zone instead of the front? Here are a few suggestions to help avoid this.
An entry formula takes the guess work out of picking your exact entry price and allows you to catch any early turns but not let it compromise your stoploss position too much. Of course spreads affect the order fill as it is the sell price that must get hit in order to put you into a buy and vice versa. In my opinion just accounting for the spread is not enough so I add a little extra on too in case there is early selling ahead of s/r because of pending orders.
From a level like 16400 I might deduct 5/10 pips for any early turn and then half the spread to give me the mid price as it appears on my charts, so my entries are either:-
16394 which is -5(-0.5xSpread)
16389 which is -10(-0.5xSpread)
Which of these I use and whether I take them from the front or back of my trading zone depends on a few more factors:-
Trend trades and bounces off a formerly flat level e.g. bucket bottom or fractal tend to suit the front of a trading zone and the +/-5(+/-0.5xSpread) set up.
Counter trend trades and bounces from levels where price was V shaped are likely to go deeper into a zone so the back of the range would be more appropriate.
Similar to the above, price action and momentum on the final approach is also a good guide as to how deep price may penetrate.
Finally I will generally place an order earlier on levels from a higher timeframe. As I have already said in this blog you will often see price reverse 10-20 pips short of a daily level.
Profitable trading is a result of repeating a successful method over and over, planning your entries is an important part of that.
The distribution of orders means that price will rarely bounce to the pip, but there are a number of variables at work here so I suggest testing these principles out to find out what works for you best.